Chapter 2

The Channel Participants

Objective 1:
2
Major Participants in the Marketing Channel

Producers Intermediaries Final Users

&
Manufacturers

Wholesale Retail Consumers Industries

Intermediaries Intermediaries

* Commercial Channel * Target Markets

Objective 2:
1

Why shift distribution tasks to intermediaries?

Producers
& Intermediaries
Manufacturers

• spread high fixed costs

• lack expertise
• lack economies of scale
over large quantities of
diverse products
• achieve economies of
scope and economies of
scale
 2
Example: Distribution of Crayons

Manufacturer direct
to customers

• Huge order processing

facility
• Huge inventory
• Several warehouse
locations = cost prohibitive
• Transportation of
product to consumers
Objective 3:
2
Major Types of Wholesalers

All Wholesale Firms

Independent Manufacturer
middlemen owned

Merchant Agents, brokers, Manufacturers'

wholesaler & sales branches
commission &
merchants offices
 2
Merchant Wholesalers
Buy
Take title to
Store
Handle

Large quantities of products

Resell to

Industrial,
commercial,
other
Retailers or
Wholesalers
institutional
concerns
Agents, Brokers, & Commission Merchants 2

Involvedin
Involved inbuying
buying& &selling
selling
whileacting
while actingononbehalf
behalfof
of
clients
clients

Commissions
Commissions
on
on
sales
salesor
orpurchases
purchases
 2
Manufacturers’ Sales Branches & Offices

Separated from manufacturing plants

Distribute
Owned & operated by
manufacturer’s
manufacturers
products at
wholesale

Some wholesale allied &

supplementary products
purchased from other
manufacturers.
Objective 4: 2
Major Trends in Wholesale Structure

1987—1997
69.7% Manufacturer’s sales branches
& offices

60.8% Wholesale trade

57.8% Merchant wholesalers

50.0% Agents, brokers, & commission

merchants
 2
Trends in Size & Concentration

Measured by: Types of Wholesalers

Size of Majority are small businesses
wholesaler
Sales volume Nearly 40% of all firms have annual sales of
less than $1 million

# of Employees per firm Almost 50% of firms had fewer than 5

employees

Economic concentration 50 largest manufacturers’ sales branches &

in terms of % of total offices garnered nearly 53% of sales for this
sales type
Objective 5:
2
Merchant Wholesalers Specialize in
Performance Distribution Tasks

 Provide market coverage

 Make sales contacts
 Hold inventory
 Process orders
 Gather market information
 Offer customer support

• Operate at high levels of effectiveness and efficiency

• Average cost curves lower than those for their suppliers
Merchant Wholesalers’ Distribution 2

Tasks Serve Customers

 Assure product availability

 Provide customer service
 Extend credit & financial
assistance
 Offer assortment convenience
 Break bulk
 Help customers with advice &
technical support
 2
Agent Wholesalers’ Distribution Tasks

Manufacturers’
Agents

Market coverage
Sales contacts
 2
Agent Wholesalers’ Distribution Tasks

Selling agents

Market coverage
Sales contacts
Order processing
Marketing
information
Product availability
Customer services
 2
Agent Wholesalers’ Distribution Tasks

Brokers

Market coverage
Sales contacts
Order processing
Marketing
information
Product availability
Customer services
 2
Agent Wholesalers’ Distribution Tasks

Commission
Merchant

Market coverage
Sales contacts
Order processing
Breaking bulk
Credit
Holding inventory
Objective 6: 2
Retail Structure

Alternative Bases for Classifying Retailers

• By Ownership of • By Method of Consumer

Establishment Contact
• By Kind of Business • By Type of Location
(Merchandise Handled) • By Type of Service Rendered
• By Size of Establishment • By Legal Form of
• By Degree of Vertical Organization
Integration • By Management
• By Type of Relationship with Organizations or Operational
other Business Organizations Technique
 2
Kind-of-Business Classifications

Retail Trade
• Motor vehicle & parts dealers
• Furniture & home furnishings
stores
• Electronics & appliance
stores
• Building material & garden
equip. & supply dealers
• Food & beverage stores
• Health & personal care stores
• Gasoline stations
• Clothing & clothing
accessories stores
• Sporting goods, hobby, book,
& music stores
• General merchandise stores
• Miscellaneous store retailers
• Nonstore retailers
Objective 7: 1
Retail Structure Trends

Decreasing number of establishments

Increasing sales

= increase in size of retail establishments

measured by average sales volume
per store
 1
Concentration in Retailing

In 1997

4% of all retail firms

accounted for nearly 80%
of total sales!!
Objective 8:
2
Distribution Tasks Performed by Retailers

The role of the retailer in the distribution channel,

regardless of his size or type, is to interpret the demands
of his customers and to find and stock the goods these
customers want, when they want them, and in the way
they want them. This adds up to having the right
assortments at the time customers are ready to buy.

— Charles Y. Lazarus
 2
Distribution Tasks Performed by Retailers

•• Offer
Offermanpower
manpower& &physical
physicalfacilities
facilitiesclose
closeto
toconsumers’
consumers’
residences
residences
•• Provide
Providepersonal
personalassistance
assistanceto
tohelp
helpsell
sellproducts
products
•• Interpret
Interpretand
andrelay
relayconsumer
consumerdemand
demand
•• Divide
Dividelarge
largequantities
quantitiesinto
intoconsumer-sized
consumer-sizedlots lots
•• Offer
Offerstorage
storage
•• Remove
Removeriskriskby
byordering
orderingin
inadvance
advanceof ofthe
theseason
season
Objective 9: 2
Retailers’ Growing Power in Marketing
Channels

Increased size & buying Become power retailers

power &
category killers
Application of advanced Information technology & the
Technologies Internet; threetailing

Use of modern marketing Modern techniques;

strategies relationship marketing
Objective 10: 2
Facilitating Agencies in Marketing Channels

• Transportation agencies
• Storage agencies
• Order processing agencies
• Advertising agencies
• Financial agencies
• Insurance companies
• Marketing research firms